Accelerating Technology and the Jobless Recovery

The Great Recession has produced many stunning statistics. High unemployment numbers. Large drops in output and jobs. But the most amazing fact is that while the output of the U.S. economy has returned to its previous peak before the start of the recession, the economy is now producing that output with over 7,750,000 fewer jobs than it used before.

Here are the numbers that may help explain what I mean:

In late 2007, right before the economy began to slip into the Great Recession, the output of the U.S. economy peaked at $13,363,500,000 (Real GDP) and we needed about 137,881,000 jobs to achieve that level of output. In late 2010, our economy had recovered and now produced $13,370,100,000 worth of goods and services (more than before), but only 130,128,000 jobs were needed. More output with fewer American jobs.

I think that these statistics are important to understanding what is happening in our economy. In fact, the trend has been clear for quite a while now: jobs are changing because technology is playing a larger and larger role in the workplace. For a long time, this intrusion of technology impacted only low wage job, but that is no longer true. Techonolgy is having an impact at all levels of American jobs. Consider the article in the New York Times, "Armies of Expensive Lawyers, Replaced by Cheaper Software." In a litigation in 1978, lawyers examined 6,000,000 documents at a cost of $2,200,000. Now, in a recent case, new software allowed an examination of 1,500,000 documents for only $100,000.

How is this possible? You know one of the answers. It's the new technology and new software programs that are, in some ways, able to do a better job than a team of humans. The computers do not tire out, and they require no benefits and pension costs. So, lots of jobs that were once critical to the legal profession will now be done by machines and software programs. This phenomena has played out in many industries across the U.S.

In my view, the recent recessions have been jobless recessions because business firms are more able to withstand the negative economic forces by picking up technology to replace costly humans. That is, the inclusion of more technology which was going to happen gradually over 20 or more years is now accelerated in these downturns. Without the recession, there would have been a slower implementation of technology, and we would have had more time to adjust people and jobs to the new technologies.

Moreover, in the Great Recession, the passage of the Affordable Health Care bill made humans more expensive to employ, or at least far more uncertain in terms of benefits and other costs. The actions of Congress accelerated something that was already speeding up - the use of technology to take over human jobs. There could not have been a worse time for the passage of legislation that created more uncertainty in the workplace, and given the current fiscal chaos in our government, machines and software programs are going to look better and better.

Current Comments

And yet, we're still producing much less than we could be producing. Isn't this all the more reason for the fiscal and monetary authorities to target Nominal GDP? I'm sure some of the change is structural, but surely a large chunk of the 9% unemployment rate is cyclical.

The "hourglass economy" is another result of a fiat currency based on debt. Without consumer debt, there is no currency.

So, with the help of the Federal Reserve, bankers and financiers create money out of thin air that does not exist, in order to pay for things that otherwise would not be affordable.

In this way they can sell more loans to global financiers, large businesses, and big governments. With the ever increasing flow of new "inflated money" created, there are more business and political opportunities for those with the right contacts.

Because of this, smaller businesses, with lower economies of scale, are forced to compete with those entities who have access to an unlimited supply of "new money".

This intern forces lower wages, the production of less qualified and cheaper goods, an increase of burdensome regulation and taxes, and creates a call for subsidies in a vain effort to save money and stay in business.

As cost rise over time more people find that their savings are diminished as more people try to "finance" their way to prosperity, which further leads to wealth evaporation.

And over time the "manufacturing base" leaves to the country that can best manipulate their fiat currency and pay the least, while the existing economy turns to a service economy that caters to those who are well off.

Throw in a financial bubble which destroys wealth from time to time and the result is that the masses get poorer over time, while the few get richer and richer. Thus the hourglass effect is created

Posted By: tk | Mar 17, 2011 8:35:32 AM

I honestly don't think the recession is over and there is more bad news to come. There is too much over-capacity, over-stock and the consumer is still not spending enough to create jobs.

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about this blog

Dr. Samuel M. Laposata teaches Economics at Muhlenberg College. He is now Visiting Professor of Economics, but many adult students remember Sam where he was Dean of the Wescoe School. Before coming to Muhlenberg in 1994, Sam was the Chief Economist for Virginia Power (now Dominion Power) in Richmond, Virginia. The goal of this blog is real simple: make sense of what’s happening in the economy.